Prime Minister John Key says a clear message has been sent to businesses to do more research and development.
The Government has announced new funding for science ahead of the Budget on 20 May, with the centrepiece a research and development grant scheme for businesses.
It has put aside $225 million of funding for new initiatives in the next four years, with a further $96 million to come from existing science funds.
The funding, announced on Tuesday, replaces the previous-Labour government's research and development (R and D) tax credit, scrapped when National came to power.
But while Labour's tax credit was worth $630 million over four years, the Government's new funding totals about half that amount.
The Government has ear-marked $321 million for new programmes in the science sector over the next four years. Some $225 million is new money, while $96 million is from existing science funding.
Prime Minister John Key says the focus is on encouraging companies to undertake more research and development.
"We're trying to send a really strong message to New Zealand businesses that we want them to invest in their future and invest in science R and D.
"The fastest way to make sure that they are well positioned in the world, can get a top quality price and therefore pay their workers more, is to be at the cutting edge of the knowledge economy and to do that we're giving this incentive."
Almost $190 million will be available in grants over the next four years for medium to large-sized firms that already do significant amounts of research and development.
Another $20 million will be spent on vouchers for companies to buy research from public organisations, including universities and Crown Research Institutes.
John Morgan chairs Science New Zealand, which represents Crown Research Institutes and says the new arrangements should improve links between the science and business sectors.
"There has been a disconnect for some time between the science community, the researchers and business. What I'm seeing here is a very serious attempt to get that connection between the business community and the science community."
The New Zealand Association of Scientists welcomes the move, but is questioning the need to reallocate $96 million dollars of funding from areas including health, social and environmental research.
It says the thinking behind the Government's strategy is short-term, with too little emphasis on fundamental research.
Recruitment a key focus
The Budget allocation for science involves shifting $96 million of existing funding to the Government's new programmes.
No detail has been provided of what will be axed as a result, but the Minister of Research Science and Technology says it will be up to the Foundation for Research, Science and Technology to decide.
Recruitment and retention of scientists is another key part of the funding announcement.
Some $25 million has been set aside over four years for fellowship grants to encourage younger scientists to stay in New Zealand and $9 million will be available to help recruit top overseas scientists.
Tax credit offers better incentive - Labour
The Labour Party believes its tax credit would have provided a bigger incentive for businesses to undertake more research - by providing more money and letting firms chose their own research rather than having to apply for a grant.
But Prime Minister John Key does not agree.
"All of the advice we had from the major accounting firms is that an R and D tax credit system encourages all the wrong behaviour from companies.
"It encourages them to actually reclassify expenditure to get it into this category, whereas under our system they actually have to prove it's real science R and D."
However, Labour's Research Science and Technology spokesperson David Shearer says other countries have successful tax credit systems.
"Australia, for example, just very recently announced a 40 percent tax credit for its most innovative companies on R and D - now that's way and above what we're going to be getting in New Zealand for our companies.
"These companies are going to make the decisions on what they do themselves, rather than having to apply for a grant or a voucher to be able to do it."